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Raymond J. Learsy

Raymond J. Learsy

Posted: February 14, 2010 05:27 PM

If the OPEC Cartel Is Being Tolerated, Why Not a Grain Export Association?

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OPEC and the manipulation of the commodity markets (please see "The CFTC and Department of Energy Snore Away While Oil Patch Makes Hay") have successfully doubled the price of oil since the outset of the Obama administration, when oil was quoted in the low 30's a barrel in February 2009. The administration has been helpless -- or unwilling, given the influence of the oil industry and Wall Street -- to confront the manipulation of a market that is literally overflowing with product, with producers, importers, and traders pushing up prices by literally keeping millions of barrels in supertankers at sea because there is insufficient storage on land. This results in higher prices at enormous cost to American and world consumers while being a major drain on our balance of payments and our economy at this precarious moment.

Given OPEC's success, given our tolerance of its activities, given its enormous cost to our society, why should we not, in our own self-interest and in an effort to level the playing field, follow its example?

Just this past week, an offhand commentary on Bloomberg informed, "Soybeans Rise as U.S. Farmers Withhold Offers After Prices Slide." The Bloomberg article went on to report "Soybeans rose for the third straight day as U.S. Farmers, the world's biggest producers, withheld supplies after prices slumped in the previous five weeks." Encapsulated in that sentence is the very essence and fundamental operating philosophy and modus operandi of the Organization of the Oil Exporting Countries (OPEC) toward increasing the price of oil.

Simply put, the OPEC cartel colludes to reduce the availability of oil in order to raise oil's price in the world market.

After the current financial calamity and the demise of our industrial underpinnings such as the automobile industry, food grains -- the efficiency of our farms and our vast expanses to grow crops -- are fast becoming once again the core industry of America's future. Malthusian precepts are quickly coming into focus once again. With food supplies increasing arithmetically and with the number of people growing geometrically, the world population will risk food shortages. As Malthus wrote in 1798, "The effects of these two unequal powers must be kept equal....This difficulty must fall somewhere and must necessarily be felt by a large portion of mankind." And we are nearing a tipping point, a condition masked in large measure by problems in the world economy such as the financial crisis, as detailed by Carlisle Ford and Piehl Runge in their comprehensive study "Against the Grain" in the recent issue of Foreign Affairs.

We take the availability of food grains for granted, whereas oil is viewed as a rare and diminishing resource, thereby providing all manner of rationalization to prices totally cut adrift from real supply and demand. Grains, on the other hand, are viewed as a renewable resource and traded in the open market, reflecting at least near accurate price determinations by market forces. Well and good, but it rests on an erroneous market concept. If distortion in oil pricing is excused by the public at large, and by government and government policy because it is a diminishing resource, then the same need apply to food grains as well.

Why? Because the dramatic rise in agricultural productivity, which has likely reached its limits, is anchored in the vast application of fertilizers, herbicides, insecticides and genetically engineered seed advances. Fertilizers especially are core to the Green Revolution, and they are consumed by farmers world wide in the millions upon millions of tons. Phosphates and potash are mined extensively and are more at risk of diminishing dramatically in their availability than oil. Without these fertilizer inputs, together with nitrates and ammonia, the ability to feed the world this very day would be nil.

Which raises the further question: if the oil producers, whose output is innate to the well being of the world's economy, can organize into OPEC to hype the price of oil, why shouldn't our farm sector do likewise?

Under normal circumstances, collusion between producers within the United States would run counter to the stringent existing antitrust laws. Yet there exists a legislative anomaly called the Webb-Pomerene Act, permitting American companies to openly collude in setting export marketing policies, in essence setting up an export cartel. It permits Webb-Pomerene associations "to pool resources, identify strategies for specific foreign markets and benefit from economics of scale ..."

A "Grain Webb-Pomerene Association" could be organized through regional co-ops, grain elevator operations, etc. The question then becomes, would the creation of food grain export cartel be anti-ethical, given the world's basic needs? The answer flips back to OPEC. If the world and individual nations are tolerant of OPEC's manipulations, it would be the height of hypocrisy to castigate a grain cartel.

Yet if a grain cartel is held up to a general challenge because of the essential nature of its product, then the same needs apply to OPEC, and all the manipulation manifest in hyping oil prices. And the time for that to happen is long past due!